Rishi Sunak is reportedly set to raise UK corporation tax in his 3 March Budget in a bid to raise an extra £12bn in government revenue.
Sunak will help pay off for a further extension of the government’s Covid-19 support programmes by raising the corporation tax rate from its current 19 per cent to 23 per cent.
The Sunday Times reports that the tax increase will be staggered so it reaches 23p in the dollar by the UK next General Election in 2024.
It comes as the chancellor is also considering handing out tax breaks to UK manufacturers to help aid the post-Covid recovery.
The increase in corporation tax is set to see the rate hit 20 per cent later this year to help pay for the extension to the furlough scheme, VAT cut for hospitality and retail and business rates holiday Sunak will announce in the Budget.
The tax increase could raise £3bn this year and £12bn over the next three years.
A source close to Sunak told The Times: “The corporation tax hike will be higher than expected and the extension of the support schemes will be longer than most people expect.”
The Sunday Telegraph reports that manufacturing firms in the Midlands and North are also set to see tax relief in the Budget.
The move will be touted as a way to spur the UK’s post-Covid recovery, while also enabling Boris Johnson’s agenda to “level up” the Midlands and the North.
A source said: “There is a sliding scale of how far you go…but virtually anything on capital allowances is good for manufacturing businesses, the North and Midlands, anywhere that needs levelling up.”
A number of business groups and think tanks, and Labour leader Sir Keir Starmer, have urged Sunak not to raise taxes in the 3 March Budget.
The influential Institute for Fiscal Studies think tank said IFS director Paul Johnson said the chancellor should not raise taxes until he had “secured” the country’s economic recovery.
However, the IFS also warned that “sizeable net tax rises” will be needed at some point to pay for the government’s near £300bn in Covid spending.